Nepotism Destroys Company Culture & Productivity

If there’s one thing I don’t like about companies is nepotism. If you’re in a family business, nepotism is a productivity killer. And it was certainly the cause of a lot of my headaches when I first started working at Robroy.

In those early days, we were running three 8-hour shifts in the factory, and many of the employees were often relatives of older employees. The son of a floor manager, the niece of a shift leader, and so on.

My biggest challenge was finding ways to reduce our overhead and cut our dead weight, so I began showing up on the factory floor unannounced at all hours of the day and night, like walking into the factory at 3:00 a.m. And I would fire anyone I found asleep on the job.

We also started measuring everyone’s output and productivity. (Not just on the floor, but throughout the entire company, but that’s another article.) People who weren’t producing the minimum number of units were also let go. If they couldn’t “make rate,” then we didn’t need to have them around.

Pope Paul III with his cardinal-nephew Alessandro Farnese (left) and his other grandson, Ottavio Farnese, Duke of Parma (right). The term ‘nepotism’ came from the practice of popes appointing their nephews to positions of cardinal, creating Cardinal-Nephews.After a few months, we cut back from three shifts to two, and eliminated people who weren’t measuring up, and I fired a lot of people who had been sleeping on the job. Those who remained from the third shift were placed into first and second shift work.

All in all, we reduced a third of our workforce, eliminated the drag on the productivity, and we never slowed down our production or reduced our output.

Think about that: we eliminated one-third of our workforce and one of our shifts, but still made the same number of units in the same amount of time.

(I still shake my head when I think about all that waste today.)

One big factor that I noticed in many of the people I let go? They were relatives of people working at the company, and in some cases, relatives of relatives. The nepotism of the company had been killing the productivity on the floor, and nearly ended the company.

Of course, it was a family-owned company, and there are some times that you just can’t avoid nepotism.

Over the years, what I’ve found is that if you’re a member of the family ownership, you’ll never get it, or know why the company is so important, or how it grew to be that way. The third and fourth generations of a company are fundamentally going to get something for free. They didn’t earn the leadership positions, they were born into it.

In fact, it’s called the Third Generation Curse. There is story after story of the grandson of the owner driving a company into the ground — these are successful multi-million dollar companies with international offices and hundreds of employees. You would think someone would be able to rein in the leadership and save the company, but it never happens and thousands of people lose their jobs to nepotism.

In those business failures, the third generation didn’t see what the first generation did to build the company. The son or daughter of the founder did. They saw it when their father or mother came home, tired after a long day’s work. And when they joined the company, they learned the lessons passed on from their parent-CEO, as they helped the company grow themselves.

By the time their own children were old enough to join the company, they never saw those lessons, never learned what it took to grow the company, and didn’t have the same blood, sweat, and tears invested into the company.

So when the third generation took over, they didn’t know how to maintain that energy wand determination, they hadn’t created the company’s vision, and so the company failed.

That’s why you rarely see a privately-owned company last beyond the third generation: Because the grandsons and granddaughters aren’t hired for their business acumen. They’re not appointed because of their knowledge. They’re there because of the last name on the CEO’s door.

If you want your business to survive beyond the third generation, adopt the philosophy that if any family member cannot qualify to hold a position within your organization, they will not have it. Make sure that your family members can actually do the work, and aren’t just there because of their family lineage.

I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business. If you would like more information, please visit my website and connect with me on Twitter or LinkedIn.

I’ve been a manufacturing executive, as well as a sales and marketing professional, for a few decades. Now I help companies turn around their own business. If you would like more information, please visit my website and connect with me on Twitter or LinkedIn.